Royal Caribbean Cruises Management Discusses Q2 2012 Results - Earnings Call Transcript

Royal Caribbean Cruises (RCL)

Q2 2012 Earnings Call

July 26, 2012 10:00 am ET

Executives

Brian J. Rice - Chief Financial Officer and Executive Vice President

Richard D. Fain - Chairman and Chief Executive Officer

Adam M. Goldstein - Chief Executive of Royal Caribbean International and President of Royal Caribbean International

Analysts

Robin M. Farley - UBS Investment Bank, Research Division

Felicia R. Hendrix - Barclays Capital, Research Division

Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Gregory R. Badishkanian - Citigroup Inc, Research Division

Jaime M. Katz - Morningstar Inc., Research Division

Assia Georgieva

James Hardiman - Longbow Research LLC

Brian D. Egger - Topeka Capital Markets Inc., Research Division

Michael Kass

Presentation

Operator

Good morning. My name is Sabrina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Royal Caribbean Cruises Ltd. Second Quarter Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Brian Rice. You may begin, sir.

Brian J. Rice

Thank you, Sabrina, and good morning. I'd like to thank you for joining us today for our second quarter earnings call. Joining me here in Miami are Richard Fain, our Chairman and Chief Executive Officer; Adam Goldstein, President and CEO of Royal Caribbean International; and Ian Bailey, our Vice President of Investor Relations.

During this call, we will be referring to a few slides, which we had posted on our website, www.rclinvestor.com. Before we get started, I would like to refer you to our notice about forward-looking statements, which is on our first slide.

During this call, we will be making comments that are forward looking. These statements do not guarantee future performance and do involve risks and uncertainties. Examples are described in our SEC filings and other disclosures. Additionally, we will be discussing certain financial measures, which are non-GAAP as defined, and a reconciliation of these items can be found on our website.

Richard will start with his comments. I will follow with a brief recap of our results and give an update on the booking environment and our forward guidance. Adam will talk about our brands, and then we will open the call to your questions. Richard?

Richard D. Fain

Thanks, Brian, and thank you all for joining us this morning. As always, I look forward to this opportunity to discuss our business. I'd like to start my comments though this morning by noting that for a very long time, we have always had exactly the same people in this room. But today, for the first time in about 6 years, there's a difference. As you know, Dan Hanrahan, President and CEO of our Celebrity Cruises line, is leaving us to assume the reigns at Regis Corporation as their CEO. We extend to him our best wishes, while at the same time, knowing that his leadership will be missed. Fortunately, as is the trait of any strong leader, Dan has not only built a terrific brand, but he's built a strong venture of leadership that provides great depth of talent, one that will seamlessly continue to provide the exceptional experiences that our guests at Celebrity Cruises come to expect. We anticipate announcing a successor for Dan in the near future.

Turning to the business environment, 2012 is certainly living up to its billing as an interesting year. We knew that the Concordia grounding would hurt us in the short run, and that expectation unfortunately has proven very accurate. Fortunately, our other expectation that the -- i.e. that the impact would wane over time has also proven to be accurate. And also fortunately, most of our markets continue to perform well despite a very challenging economy. The Caribbean continues to perform nicely and in a very solid manner. Alaska is holding up reasonably well, even having as comparables the record yields that we enjoyed last year. In Asia, revenue yields are making us feel exceptionally good, despite the fact that we have an 80% capacity increase. In Asia, we are seeing some of the largest regional increases in our company's history. Part of this is due to easy comps from last year, but most of it is simply due to better penetration in areas with better economies. The bummer, of course, is Europe. We all knew there were challenges there, but we had not anticipated either the severity of the financial crisis or the roller coaster ride that the politicians and the media have precipitated. And, of course, the Concordia impact there has been the greatest and the slowest to dissipate. These European pressures have outweighed all the good news for the rest of the world and is driving our yield guidance down by about 1%.

As we reported in our release, we're working hard to offset those changes with cost reductions wherever possible. Of course, all of us feel frustrated over the combination of Europe's economic malaise, together with the impact of the cost of Concordia tragedy. They have hurt us in what should have been exciting improvements in our returns. But regardless of these setbacks, we'll continue to focus our energy on controlling costs and improving pricing, the primary drivers of improving returns. We've had glimpses of the fruit that these initiatives can bear, as our yield improvements prior to the Arab Spring last year and the Concordia financial meltdowns this year were exceptionally promising. So we know we're on the right track, and we're making the proper structural decisions for the future. But we, like so many others, are frustrated by these barriers. Having acknowledged this, we've remained exceptionally bullish on our industry and with our brands in particular. As I've said before, we've shown how resilient we are as a company and as an industry. Looking forward, we're not relying on too much economic improvement to drive our earnings. Our plan has been to improve pricing mainly through lower capacity growth, complemented by global expansion of demand, smarter use of technology and deployment optimization.

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